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The business of playing ball in the A-League

Owning an A-League football club is historically not for the faint-hearted. Quite the opposite really. It’s for people with plenty of dollars and, some may argue, no sense.

Since the A-League’s inception in 2005, two teams – Gold Coast United which reportedly lost A$18 million (NZ$19.4m), and North Queensland Fury – have closed down.

The Auckland-based New Zealand Knights also went belly up, threatening to mark the end of the professional football era in New Zealand. But in stepped property developer Terry Serepisos, who in 2007 established Wellington Phoenix. While the team eventually made it to three consecutive A-League finals series, off the field it was a financial battle. Serepisos said he had to inject personal funds of up to $1.5m a season to keep the club afloat.

But as the global financial crisis took hold, the Serepisos empire crumbled. In 2011, he lost control of the Phoenix and was declared bankrupt.

Former Wellington city councillor John Morrison had seen the writing on the wall and worked hard geeing up wealthy local businessmen to rescue the club. It was taken over in 2011 by Welnix, a consortium led by former investment banker Rob Morrison – now club chairman – and economist Gareth Morgan, who says there was one main reason why some of the capital’s best and most successful business brains signed up to save the Phoenix.

“Just because the council asked us to. John Morrison came and said you have to save this thing otherwise we are going to lose it. I saw it as social work.”

The consortium took over the club even though it hadn’t seen financial accounts from the Serepisos era.

“I’ve never seen a set of books to say if the club ever ran at a profit. I suspect it hasn’t. It was a voyage of discovery,” Morgan says.

Governing body Football Federation Australia (FFA) forecasts the owners of A-League clubs will this season lose a combined A$8m to A$12m (NZ$8.6 to NZ$12.9m). That is an improvement on the 2011/12 season when the 10 A-League clubs incurred combined losses of almost A$27m (NZ$29.1). That fell to about A$20m (NZ$21.5m) last season.

A-League boss Damien de Bohun says the mission is to have a “commercially sustainable, world class competition.

“We think this year there could be as many as four clubs . . . and maybe up to six which, if they don’t actually make a profit or break even, it will only be by a few hundred thousand dollars.

“Another thing to point out is the Hyundai A-League is now the 15th most attended football competition on the globe.”

Welnix was issued a five-year A-League licence by Football Federation Australia. It expires after the 2015/16 season. In its first year of ownership (2011/12 season) the eight-strong Welnix consortium had to collectively pump about $2m into the club’s coffers.

Morgan says the figure fell to about $1m last season. He expects it to be below that for this season.

“Our mission was to build the club to stop the bleeding. You’ve got to say we’re on course to achieve that.

“But it is a bit of a freaky experience being involved in something where the aim seems to be to break even. It is quite hard to orientate myself to that.”

The Phoenix has several revenue streams. For a start it receives central funding of A$2.5m a year (NZ$2.7m), up from A$1.9m (NZ$2.05m), from the FFA.

Phoenix general manager David Dome says the FFA funding is used for a specific purpose. “Our position is that . . . it pays for the player salary cap and that’s what we stick to.”

A-League head de Bohun says the new four-year, A$160m (NZ$172m) broadcast deal was key to the increased level of funding. “We have matched the salary cap for the first time . . . So in effect the FFA pays for the cost of the players. The rest is up to the clubs.”

A-League clubs may also pay marquee players outside the salary cap. The most notable example is the A$4m (NZ$4.3m) a year, two-year deal between Italian superstar Alessandro Del Piero and Sydney FC.

Club owners make their own decisions on whether to fork out big bucks for marquee players, which obviously has an influence on the bottom line, de Bohun says.

However, Dome says there is no evidence in the A-League that this sort of model is successful and the Phoenix would not go down that path. The number of players on the Phoenix’s books can be fluid, with temporary injury replacements and loan players, but there is generally a roster of 22 to 24.

The Phoenix has moved to performance-based contracts for players which take into account how many appearances they make and how well the team is performing.

Office staff at Phoenix HQ in Vivian St numbers eight, including Dome, while head coach Ernie Merrick can call on a team of seven to assist in preparing the team. They all have to be paid from revenue outside FFA funding.

The club’s most lucrative sponsorship is with Chinese telecommunications giant Huawei but just how lucrative it is remains a closely guarded secret.

Funds from Football New Zealand are also collected to recognise the club’s role producing players good enough to earn international selection.

Dome says revenue from the sale of Phoenix merchandise, such as replica playing strips, and supporters’ shirts, caps and scarves, is “not insignificant” but would not “swing it [financial success of the club] either way”.

Morgan says turnover at A-League clubs ranges from $6m to $14m for the likes of heavyweight clubs Melbourne Victory and Sydney FC. The Phoenix are at the lower end of the scale.

While the Phoenix may generate a bit more cash through sponsorships, he says making the club turn a profit comes down to getting more fans through the Westpac Stadium turnstiles.

“If we could get a steady 10,000 people as our base attendance, then event-day revenue would be pulling its weight.”

A fixed cost charged by the stadium has to be met through ticket sales. Poor crowds means little or no money goes to the Phoenix, he says.

“Event day for us doesn’t make any [financial] contribution . . . or bugger all.

“Our strategy [to boost attendances] has been to improve the style of football. Get the on-field performance better.

“But I don’t know. Look at the [Wellington] Lions. They got to the [NPC] final last year in the rugby and still the crowds didn’t come.”

Dome says the Phoenix have this season played eight games at home, including in Napier and Christchurch.

“The two games that have made money were the . . . games in Napier and Christchurch. Auckland [the Phoenix play Adelaide United today at Eden Park] will also make money.”

Dome was left under no illusion about what the club’s owners expected of him when he was appointed general manager in March 2012 – promoted from his role as marketing manager. “They said they would turn it around in three years, it needs to make money . . . That is the challenge they told me.

“If it can’t then the logical deduction is New Zealand can’t afford to have a professional football club, and no one wants to go there.”

MORGAN says if the Phoenix does become profitable then Welnix would consider selling part of the club to fans.

“That’s a public funding model. I like that model but we’ve got to get the thing washing its face. There is no way you’d want to sell the fans a pup.

“If we can get the . . [club] a bit more robust and sustaining then I think the idea of a public fan shareholding is fine. It would be great.”

An item under discussion by all A-League clubs with the FFA is about issuing A-League licences for longer than the five-year term awarded to Welnix.

“Unless they can give us . . . longer terms, it is very difficult justifying investing. You might invest and then [five years later] lose your licence. Investors in these clubs need more security . . . I think it will probably go to 10-year licences.”

He was unsure whether his Welnix partners would go for a 10-year deal when the Phoenix licence is up for renewal in 2016. “I would probably do it so long as I could get enough guys around me. I don’t want to take the whole thing myself. It’s very volatile.

“You can think you’re gong to break even, lose a major sponsor, and you make a million-dollar loss. I don’t want that because you are tied in for 10 years.”

De Buhon confirms the A-League is discussing the length of licences so investors have greater security. “Because Wellington [Phoenix] sits outside our country and confederation – New Zealand is part of Oceania and Australia part of Asia- we do need to apply to both the AFC [Asian Football Confederation] and Fifa for special dispensation for Wellington to have a licence in the A-League.

“But they are a critical part of the league. They need to become the New Zealand club . . . supported by all of New Zealand.”

When the broadcast deal is renegotiated in 2017, a new team or teams may be added to the league. But de Buhon says it is too early to say whether it would include a second New Zealand-based team.

FINANCIALLY WORLD’S APART

Few people are better placed than Wellington Phoenix assistant coach Chris Greenacre to compare the club’s setup against those based in England.

By the time Greenacre was signed for the Phoenix in 2009 he had already notched up 350-plus professional appearances.

His career started with Manchester City. After eight games, he was loaned to a variety of lower league clubs including Scarborough and Mansfield Town. He eventually signed for Mansfield. He later had stints at Stoke City and Tranmere Rovers.

Greenacre said he was fortunate to experience football at different levels.

“At the big clubs there is more staff and someone to do everything for you. I don’t want to sound patronising but basically I had my backside wiped.”

Then there was Mansfield Town.

“Players were having to save their strappings, to strap the ankles, to use them the following week. One bandage might last about four or five weeks. There was literally no money.

“Going on loan to play at Scarborough and places like that we had to hire school pitches, get rid of dog muck off the training field.”

Greenacre said a team like Mansfield could only dream of the sponsorship deals going through the Phoenix. “One sponsorship deal from . . . Huawei is probably more than the budget for a year for a team like Mansfield or Scarborough. The financial implications are just miles and miles apart.”

Greenacre said his experiences taught him to take nothing for granted. “I am in a privileged position where we [Phoenix] stay in some really nice hotels, we are flying every other week. Although we haven’t got a massive budget, it is still a lot of money to book flights and accommodate players for days on end.”

The business of playing ball in the A-League was last modified: December 15th, 2015 by Gareth Morgan

The business of playing ball in the A-League was last modified: December 15th, 2015 by Gareth Morgan

About the Author

Gareth Morgan

Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.